The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by myself and my colleague Susan Barrett.
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Orthopedics & Podiatry Investments
By Susan Barrett and Holly Buckley
A transaction between a private equity fund and an orthopedic or podiatry practice can offer both parties significant value, according to experts who spoke on a panel titled “Orthopedics & Podiatry Investments” at the 17th Annual Healthcare Private Equity & Finance Conference, held in Chicago on February 19 and 20, 2020.
Experts included Andy Blankemeyer, CEO at Beacon Orthopedics, Robert Kinsella, Senior Managing Director at Kinsella Group, David Peterson, Managing Director at New MainStream Capital, and Peter Slate, Chief Business Development Officer at Healthcare Outcomes Performance Company (HOPCo). The panel was moderated by Holly Buckley, a partner in the Chicago office of McGuireWoods LLP and co-chair of the firm’s healthcare and life sciences industry team.
Here are four key points from the panel discussion:
1. Identifying physician practices with a track record of growth is of increased importance to private equity investors. Panelists noted that prospective investors should look to understand the motivations of the physicians selling their practices and should identify evidence that the physician group has the desire to grow and sustain the growth. Private equity investors should observe how physicians within a group interact with each other in the preliminary stages of a transaction to determine the cohesiveness of the group. Panelists recognized that orthopedic and podiatry transactions are slower sales processes relative to other healthcare transactions due to having to navigate the various personalities, and panelists recommended that private equity investors make a commitment to educate the physicians throughout the process to facilitate a smooth path to closing and post-closing transition.
2. Value-based care models can help align physicians with private equity investors. One challenge private equity investors universally face is how to keep physicians engaged post-transaction. If private equity investors can align the incentives of the physicians so that the physicians benefit from increased revenue and decreased expenses, that alignment can facilitate cost effective care. Additionally, if physicians feel they are receiving value from an equity perspective, they have more incentive to stay with the practice long term. By combining with a larger private-equity sponsored platform, smaller practices can gain access to the data and other intellectual property that make profitable value-based care arrangements more achievable. Many private equity investors are also utilizing a partner-track physician concept to incentivize the next generation of physicians and bolster physician recruitment.
3. Private equity investors can add significant value for orthopedic and podiatry practices. Panelists identified that private equity investors have immediate opportunities to increase productivity and generate better margins for practices by improving staffing, assisting with provider recruitment, resolving scheduling issues, and implementing physician incentives, among other things. Additionally, investors are capitalizing on the opportunities presented from the shift in volume from the inpatient to the outpatient setting. Attractive investments for private equity investors are those with the potential for additional revenue streams, such as in-network groups that provide ancillary services and have ASCs or, alternatively, groups that have the ability to add ancillary services and ASCs.
4. Despite the unique challenges for investors, orthopedics and podiatry investments remain in high demand. With respect to orthopedics, panelists predict that more physician groups will come to market as the groups become more educated on the competitive advantages of private equity transactions and value-based care. With respect to podiatry, panelists predict that there will be significant group-to-group consolidation to put a strong corporate infrastructure in place prior to selling to private equity investors.